ED Another stimulus packet
Deregulation, not state spending, can reinvigorate economy
The government unveiled an additional package to boost the sagging economy Wednesday. The new stimulus came just two months after the Moon Jae-in administration announced a set of measures to restore economic vitality in early July. “The government has worked out the latest stimulus with a mind of squeezing an already dry towel to prevent the economy's further slide,” said Minister of Economy and Finance Hong Nam-ki.
The successive announcements of economy-boosting steps reflect how seriously these officials view the current business slump. However, we can hardly find specific steps to speak of in the new package. Relatively noteworthy are the increase of 1 trillion won ($825 million) in investment by state enterprises and the injection of about 1.6 trillion won to bolster investment and domestic demand by adjusting the management plans of 14 out of 67 state funds. One can't read too much into these plans, though, as they are little more than frontloading budget spending that was decided on a long time ago.
The package also includes the expansion of low-interest loans for working families and the advanced payment of employment subsidies and childcare allowances. These may help stabilize the livelihood of mid- to low-income people, but it is questionable how much vigor they can give to the dormant economy. Economic policymakers are bent on pasting over the cracks instead of seeking a fundamental solution. Worse yet, consumer inflation recorded a contraction in August for the first time in 54 years, raising the specter of Japanese-style deflation.
The root cause of the economic difficulties lies in sluggish investment. Corporate spending on plants and equipment from April to June recorded a decline for the fifth consecutive quarter. However much money the government may spend, the economy can hardly recover unless the stimulus is backed up by businesses' capital spending. As we have repeated numerous times, the government should ease regulations blocking business investment. The Moon administration has vowed to push for localizing essential parts, materials and equipment to counter Japan's export restrictions. That is precisely where bureaucrats should start to relax regulations more boldly than ever before.